T’is the time of year to thank your employees for their hard work and dedication. You may do this with gifts and a holiday party. As you want to be a Santa and not a Scrooge, it is important to plan the gifts and social event so that they are not considered taxable benefits according to the Income Tax Act and consequently included in your employees’ employment income for the year.
The minimum wage in British Columbia increased today as follows:
General: $10.85 per hour
Liquor server: $9.60 per hour
Live-in home support worker: $108.50 per day or part day worked
For information on other the rate increases please refer to the Province’s minimum wage factsheet.
A recent Tax Court of Canada case revisited the topic of employee tips and whether the employer is responsible to withhold CPP and EI on the tip amount earned by employees.
If the employer controls the tip amount or controls the distribution of the tip, then CPP and EI should be withheld. An employer is considered to have control in these situations:
- The employer adds a mandatory service charge to a client’s bill to cover tips;
- The employer adds a percentage to a client’s bill to cover tips;
- Tips allocated to employees using a tip sharing formula determined by the employer;
- Tips that an employer includes in his or her business income, later expenses and redistributes to employees in the form of pay;
- Tips that the employees are required to turn over to their employer and are later distributed to the employees;
- Cash tips that are deposited in the employer’s bank account and become the property of (or even commingled with the property of) the employer and subsequently paid out to the employees.
If the employee receives a tip directly from customers, then the employer is not responsible to withhold CPP and EI. An employee is considered to receive direct tips in these situations:
- A client leaves money on the table at the end of the meal and the server keeps the whole amount;
- A client gives a tip directly to a bellhop, door person, car attendant, porter; etc.
- Tips pooled and/or shared among employees in a manner determined by the employees (as opposed to the employer);
- When paying the bill by credit card, a client includes an amount for a tip on the credit card and the employer returns the tip amount in cash to the employee;
- When paying the bill by debit card, a client includes an amount for a tip and the employer returns the tip amount in cash to the employee;
Please visit the Canada Revenue Agency’s webpage on Tips and Gratuities for more information.
Another common issue that arises with our clients is the question of “Employee of Self-Employed?”. This can have far-reaching effects including severe financial implications if you do not adhere to the regulations.
There are checklists provided by both CRA and the Province of BC which will help you determine the status of employees.
If you are an employer, it is vital that you correctly determine whether people you are hiring qualify as employees or self-employed. An important thing to remember is that you do NOT have a choice in this matter. If the hiree fits the criteria of being an employee, you MUST treat them as such.
On occasion, employers and employees feel that if they both agree, the employee can actually consider him/herself self-employed. This is not permitted.
CRA has a full guide for this determination on their website.
The basic factors to help answer this question are as follows:
Control is the ability, authority, or right of a payer to exercise control over a worker concerning the manner in which the work is done and what work will be done.
Tools and equipment
Consider if the worker owns and provides tools and equipment to accomplish the work. Contractual control of, and responsibility for, an asset in a rental or lease situation is also considered under this factor.
Subcontracting work or hiring assistants
Consider if the worker can subcontract work or hire assistants. This factor can help determine a worker’s business presence because subcontracting work or hiring assistants can affect their chance of profit and risk of loss.
Consider the degree of financial risk taken by the worker. Determine if there are any fixed ongoing costs incurred by the worker or any expenses that are not reimbursed.
Responsibility for investment and management
Consider the degree of responsibility for investment and management held by the worker.
Opportunity for profit
Consider whether the worker can realize a profit or incur a loss, as this indicates that a worker controls the business aspects of services rendered and that a business relationship likely exists. To have a chance of a profit and a risk of a loss, a worker has to have potential proceeds and expenses, and one could exceed the other.
The Province of British Columbia also lays out the criteria for establishing the status of workers. Their website provides clear definitions and examples to help you determine what is the correct approach for your business.
One or more of the following factors is often wrongly believed to establish an independent contractor relationship: (examples as posted on the Province of BC site):
- Agreement: The act of signing an independent contractor agreement does not necessarily create an independent contractor relationship. The actual work relationship determines if a person is an employee or independent contractor. Any agreement to waive employment standards entitlements is prohibited by the Act.
- Person sets own hours and is not actively supervised: The business may provide significant levels of flexibility to its employees.
- Drives his or her own vehicle/provides own tools: It may be a condition of employment that a person provides a vehicle so as to perform the work. In some sectors employees are expected to provide their own tools.t levels of flexibility to its employees.
What happens if you make the wrong choice?
If you have been incorrectly treating an employee as self-employed, you will be subject to not only covering all the CPP and EI contributions plus penalties for not filing payroll remittance reports and contributions; penalties for not filing annual T4s, and WorkSafe BC dues and penalties.
If you fail to comply with the deducting, remitting, and reporting requirements, you may be prosecuted. You could be fined from $1,000 up to $25,000, or you could be fined and imprisoned for a term of up to 12 months. A full list of penalties and other consequences is available on CRA’s website.